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Archive for September 8th, 2018

President Trump and former President Obama are arguing over who deserves credit for the economy’s performance. Given the less-than-ideal numbers for labor force participation, I’m not convinced we should be celebrating.

Regardless, here’s a quick assessment of whether Obama deserves praise, taken from yesterday’s interview with Neil Cavuto.

To elaborate, I generally don’t blame presidents if there’s a downturn as they take office. In many cases, such a downturn is baked in the cake thanks to bad monetary policy before they ever took office.

But I do hold them at least somewhat accountable for the economic performance after the recession. More specifically, is there strong growth for a year or two, allowing the economy recover the lost output? And does the economy then stabilize at the long-run trend of 3 percent growth (as illustrated by this chart showing U.S. growth from 1870-2008).

Remember, there is no substitute for long-run growth if the goal is higher living standards.

Yet we didn’t get that growth under Obama. We didn’t get a period of above-average growth, which meant we never recovered the lost output from the recession. We never even got back to the historical trendline.

Here’s a chart from Business Insider that reviews what has happened over the past 10 years. As you can see, we haven’t come close to our potential GDP. This is why Obama deserves bad marks.

But this doesn’t mean Trump deserves good marks.

First of all, it’s far too early to give a final grade. And, for what it’s worth, his interim grade is not that great. Good policy on taxes and red tape is being offset by bad policy on spending and trade.

Let me also say something semi-positive about the Obama economy. We may not have enjoyed strong growth, but the economy continued to expand. And if the economists who argue that there are structural reasons causing permanently lower potential growth are correct, maybe Obama did okay (my view is that “secular stagnation” is driven mostly by bad policy choices, so I’m not overly sympathetic to this hypothesis).

Regardless, Obama largely didn’t do anything destructive after his first two years (when we got mistakes such as the fake stimulus, Obamacare, and Dodd-Frank). Indeed, we even got some good policy later in Obama’s tenure, though the overall effect of his policies was negative.

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